With oil trying to push back through the psychological $50 a barrel level, it’s becoming increasingly apparent that many of the exploration and production (E&P) companies learned their lesson during the huge sell-off in 2015 and are quick to slow down when the price starts to stagnate. While a collapse of oil back into the $20s seems unlikely, it’s a good bet that the black gold could stay range bound between $45 and $55 for some time.
A new research report from the oilfield services and equipment team at JPMorgan makes the case that while Wall Street applauds the new discipline being shown by E&P and services companies, the analysts do note that energy remains in what they call a “bad news is bad news” environment, and they stick with the large cap oilfield services leaders and some select smaller companies. We found five that make sense to own for the rest of 2017.
This stock is still down almost 25% from highs printed in January, and it remains the top large cap pick at JPMorgan. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.
Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.
The company posted solid second-quarter results, which the JPMorgan team anticipated, and they noted this in the report:
Though we were encouraged by Halliburton’s restraint regarding frac newbuild equipment and believe the recent reset somewhat de-risks smid-cap frac prints, the company’s full third quarter frac schedule suggests runway for others.
Halliburton shareholders are paid a 1.7% dividend. The JPMorgan price target for the stock is $60, and the Wall Street consensus target is $57.50. The shares traded early Wednesday at $42.90.
This top oil services company is a solid large cap pick for more conservative accounts. Schlumberger Ltd. (NYSE: SLB) is a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry.
The company operates in the oilfield service markets through three groups: Reservoir Characterization, Drilling and Production. Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions.
Schlumberger is the world’s largest provider of services and equipment used in drilling, evaluation, completion, production and maintenance of oil and natural gas wells. Revenues in 2016 totaled $27.8 billion, and the company posted EBITDA of a massive $6.5 billion.
Schlumberger also posted very solid second-quarter results, exceeding consensus expectations for both revenue and earnings by a notable margin. Despite the slowdown of the recovery in commodity prices in the second quarter, the company managed to grow its top and bottom lines, driven by rising drilling demand in the North American onshore markets, as well as seasonal improvements in the international markets.
Shareholders are paid a solid 3% dividend. JPMorgan has a $79 price objective on the stock, in line with the consensus estimate of $79.23 a share. The stock traded Tuesday morning at $67.10.